Lease VS Buy................

[jaydee325]

I work in an industry that is required by law to perform periodic background checks. This includes a credit check. Does this credit check affect my credit score?

 

[MinnesotaEric]

I work in an industry that is required by law to perform periodic background checks. This includes a credit check. Does this credit check affect my credit score?

Only if you sign a document allowing them to view your credit remarks. A look-up that simply shows a score without remarks should not pull your credit score down.

 

[RoMad]

Very interesting thread and comments. Thanks Eric.
I do have one question for you. If your so smart, and I think you are, why don't you have a tractor? :laughing:

 

[MinnesotaEric]

Very interesting thread and comments. Thanks Eric.
I do have one question for you. If your so smart, and I think you are, why don't you have a tractor? :laughing:

You've heard the saying, "Id rather be lucky than good," right?

I have no luck.

 

[Verticaltrx]

In other words, the difference between credit scores can make you wealthy or poor.

I would argue that maintaining a credit score is a good way to keep you poor....

 

[MinnesotaEric]

I would argue that maintaining a credit score is a good way to keep you poor....

There are exceptions but the weight of statistics is against your thesis. I think it is a better argument that people with higher debt to income ratios experience poorer outcomes than people with lower or no debt to income ratio.

 

[MHarryE]

Maintaining a good credit score may keep some people poor but not if you use it wisely. We purchase everything we can on a credit card and get 2% back. In the 45 years we have been married the only time we have paid credit card interest is for foreign currency cash advance (many foreign countries will not take USA credit cards because there is so much fraud so you need to get your money from the ATM across the street to pay your bill in cash). We have had two houses most of our life and have always paid early. Now that I am a retired engineer and full time partner our farm depends on my credit. My cousin, with whom I am a partner, has never borrowed money. He has no credit card. He can't order parts on line - no credit card. He pays cash for his part of the equipment while I take advantage of zero percent loans and have it figured out that at conservative return I smash the heck out of cash discounts. So playing the credit game properly can pay major rewards.

I do have to snicker at my city loving brother-in-law. He had to make sure all of our doors were dead bolted last time he was here because of the expensive electronic stuff they have - a few tablets, a couple laptops. We have over $1million in equipment sitting out around (okay, we have 5 computers and 2 laptops too). If someone made off with our 5 newest tractors - well, we do have good insurance. Anyway it has made life a lot easier for my cousin when I brought my good credit into the partnership and is a reason why we keep assets differentiated instead of in a LLC.

 

[MinnesotaEric]

Maintaining a good credit score may keep some people poor but not if you use it wisely. We purchase everything we can on a credit card and get 2% back. In the 45 years we have been married the only time we have paid credit card interest is for foreign currency cash advance (many foreign countries will not take USA credit cards because there is so much fraud so you need to get your money from the ATM across the street to pay your bill in cash). We have had two houses most of our life and have always paid early. Now that I am a retired engineer and full time partner our farm depends on my credit. My cousin, with whom I am a partner, has never borrowed money. He has no credit card. He can't order parts on line - no credit card. He pays cash for his part of the equipment while I take advantage of zero percent loans and have it figured out that at conservative return I smash the heck out of cash discounts. So playing the credit game properly can pay major rewards.

I do have to snicker at my city loving brother-in-law. He had to make sure all of our doors were dead bolted last time he was here because of the expensive electronic stuff they have - a few tablets, a couple laptops. We have over $1million in equipment sitting out around (okay, we have 5 computers and 2 laptops too). If someone made off with our 5 newest tractors - well, we do have good insurance. Anyway it has made life a lot easier for my cousin when I brought my good credit into the partnership and is a reason why we keep assets differentiated instead of in a LLC.

What's the first rule of locking doors in northern MN?

Don't tell them we don't lock anything up.

But do tell them stories about big foot because it keeps the riffraff out of the woods.

And make videos, they love videos!

 

[dclynch]

very interesting Thanks

 

[mjstef]

Maintaining a good credit score may keep some people poor but not if you use it wisely. We purchase everything we can on a credit card and get 2% back. In the 45 years we have been married the only time we have paid credit card interest is for foreign currency cash advance (many foreign countries will not take USA credit cards because there is so much fraud so you need to get your money from the ATM across the street to pay your bill in cash). We have had two houses most of our life and have always paid early. Now that I am a retired engineer and full time partner our farm depends on my credit. My cousin, with whom I am a partner, has never borrowed money. He has no credit card. He can't order parts on line - no credit card. He pays cash for his part of the equipment while I take advantage of zero percent loans and have it figured out that at conservative return I smash the heck out of cash discounts. So playing the credit game properly can pay major rewards.

I do have to snicker at my city loving brother-in-law. He had to make sure all of our doors were dead bolted last time he was here because of the expensive electronic stuff they have - a few tablets, a couple laptops. We have over $1million in equipment sitting out around (okay, we have 5 computers and 2 laptops too). If someone made off with our 5 newest tractors - well, we do have good insurance. Anyway it has made life a lot easier for my cousin when I brought my good credit into the partnership and is a reason why we keep assets differentiated instead of in a LLC.

I have to laugh about the cash back cards. The retailer that takes your CC pays that and passes the cost to you so you REALLY are not getting cash back. That is why convenience stores are so **** high priced. Pisses me off to no end when someone swipes plastic for a pack of gum or a cup of coffee. The retailer is paying 15-30 cents PER transaction PLUS a percent of the sale from 1-3% My dad owns a snowbird resort and offers a cash discount to monthlies. MOST snowbirds pay their monthly lot rent in cash or check. It has saves literally THOUSANDS in transaction fees in the 15 years he has owned the place. Around here a LOT of places have a $5 or $10 minimum to take plastic or add a "convenience fee" if the transaction is under a certain amount. I accept cards for my business but give a 3% discount for cash or check. I MIGHT have run cards for around $15,000 last year for my customers out of around 250K gross.......

 

[MinnesotaEric]

In my neck of the woods merchants build transaction costs in throughout their store. However, the costs are distributed to all items and all transactions--including those items purchased with cash. Therefore, it is the cash buyer who is disadvantaged for being unable to receive any money back.

Even the people who receive $0.05 off a gallon of gas if the customer pays with cash are disadvantaged as most cash back cards offer 2% and frequently 5% back on fuel purchases. Thus the cash-back purchaser gets better than $0.06 or $0.15 back with every gallon purchased.

Up to you but I'm with MHarryE in that I see something like $100.00 cash back every month using a Chase Freedom card.

 

[Monster5601]

Eric,

Why does a credit score vary, for example, mine can vary between 808 and 756 over the course of a year or two yet my financial profile does change much. Credit karma is the one reporting it low, the bank gave me the high score when I borrowed for my new truck just a year ago. I am aware of how to maintain a good credit score and my practices align with what you posted in this thread.

 

[Verticaltrx]

There are exceptions but the weight of statistics is against your thesis. I think it is a better argument that people with higher debt to income ratios experience poorer outcomes than people with lower or no debt to income ratio.

Statistics are so easily manipulated they are almost meaningless, you should know that.


I know plenty of wealthy people who have never borrowed a dime in their lives. I also don't know of anyone who has gotten out of debt and thought to themselves "I should go borrow some money to become wealthy." I'm sorry, it just doesn't work that way. I can also guarantee that the folks who have borrowed money their entire lives to 'make money' have had a much more stressful financial life than those who have done it without debt (whether they admit it or not.) Add up the interest someone pays throughout their lives running both their personal and business affairs on credit and the amount is staggering, often in the millions.


I used to borrow money, not anymore. I was being 'responsible' in my borrowing, only borrowing to 'make money' as you describe. Things like equipment for my business and farm, using a credit card to purchase parts and supplies for the cash back, etc. After paying off my equipment I quickly realized what a burden that took off my business. My overhead was much lower along with my stress level. If I didn't work for months I'd still be ok, I could be more selective in the jobs I took, no more worrying how I was going to make all the payments. All that money that was going towards payments started going into savings and investing instead.

I haven't missed any of the supposed perks of being in debt or having a good credit score. I still can get utilities and rent equipment, just have to provide good references and talk to someone in the company with half a brain. I quickly found that by not paying for everything with a credit card I would often save a lot more than the cash back. Most of the gas stations around here off 3-5% off if you pay with cash or check instead of credit card. Same with some of the parts houses I deal with. In fact you'd be surprised at all the places that will give a 5% discount if you pay with cash if you just ask. They say they'd rather their customers get the 5% than the banks/credit card companies. Saving 5% is a lot better than making 2% cash back. Online purchases are no problem either using a Debit card through our local bank. Run through the Visa system is has all the same protections as a credit card.

Another misnomer is being able to write the interest off on your taxes. To keep the numbers simple lets say one paid $10,000 in interest over a year, lets also assume a 35% tax bracket. So, you are going to pay the bank $10,000 to avoid paying the IRS $3500? Seems like a waste to me, I'd rather keep that extra $6500 I made.

Buying land or a home is one area where you may need to get a mortgage. Even without a credit score this is fully attainable. We got our home using owner financing, made a good impression and on-time payments for a few years then got a traditional mortgage based on our history. There is still such a thing in this country known as "manual underwriting" of a mortgage, although it takes a lender who knows more about banking than just reading a credit score. You won't find this at any mega bank, but a lot of small local banks, agricultural banks, credit unions, and a few traditional mortgage companies will still do it. If you have paid everything on time in your past, have good references, a steady job and income and no credit score (no credit score is much different than a low or bad credit score) there is no reason why someone can't get a mortgage through manual underwriting or an in-house loan at a small bank.


The way to become wealthy is very simple and it doesn't include debt:

-work hard
-live below your means
-save money every year
-invest wisely

 

[Happy Gilmore]

Thanks guys. I'm more than willing to put together a post that is more comprehensive, but I don't know if there is enough interest for me to do so.

Eric, that is great info, I've often wondered how credit scores come to be and what determines them. Awesome information. Thank you for sharing!

 

[MinnesotaEric]

Eric,

Why does a credit score vary, for example, mine can vary between 808 and 756 over the course of a year or two yet my financial profile does change much. Credit karma is the one reporting it low, the bank gave me the high score when I borrowed for my new truck just a year ago. I am aware of how to maintain a good credit score and my practices align with what you posted in this thread.

Credit scores vary for the type of credit it is pulled for. Auto loans pull higher credit scores than other types of credit pulls. Moreover, because the most recent bank data is weighted higher, the older the data is, the lower your credit score will creep down even in one month—which is to say that some of the variance you noticed could be down to the time of the month the credit was pulled.

 

[mjstef]

AMEN Verticaltrx! This is why i am having such a hard time signing a note! I actually could cash purchase right now but it would pull 90% of my emergency fund leaving me only a month or 2 worth of $$$ in the bank. That is a VERY uncomfortable feeling for me! Having no bills has been a blessing for us as a family and like you say, You can cherry pick jobs instead of HAVING to take work just to make a note payment. We should be able to go the manual underwriting way within the next 6 months with our local credit union. The regular financing for this home is actually a backup plan just in case the owner decides to have a fire sale......

 

[MinnesotaEric]

Statistics are so easily manipulated they are almost meaningless, you should know that.


I know plenty of wealthy people who have never borrowed a dime in their lives. I also don't know of anyone who has gotten out of debt and thought to themselves "I should go borrow some money to become wealthy." I'm sorry, it just doesn't work that way. I can also guarantee that the folks who have borrowed money their entire lives to 'make money' have had a much more stressful financial life than those who have done it without debt (whether they admit it or not.) Add up the interest someone pays throughout their lives running both their personal and business affairs on credit and the amount is staggering, often in the millions.


I used to borrow money, not anymore. I was being 'responsible' in my borrowing, only borrowing to 'make money' as you describe. Things like equipment for my business and farm, using a credit card to purchase parts and supplies for the cash back, etc. After paying off my equipment I quickly realized what a burden that took off my business. My overhead was much lower along with my stress level. If I didn't work for months I'd still be ok, I could be more selective in the jobs I took, no more worrying how I was going to make all the payments. All that money that was going towards payments started going into savings and investing instead.

I haven't missed any of the supposed perks of being in debt or having a good credit score. I still can get utilities and rent equipment, just have to provide good references and talk to someone in the company with half a brain. I quickly found that by not paying for everything with a credit card I would often save a lot more than the cash back. Most of the gas stations around here off 3-5% off if you pay with cash or check instead of credit card. Same with some of the parts houses I deal with. In fact you'd be surprised at all the places that will give a 5% discount if you pay with cash if you just ask. They say they'd rather their customers get the 5% than the banks/credit card companies. Saving 5% is a lot better than making 2% cash back. Online purchases are no problem either using a Debit card through our local bank. Run through the Visa system is has all the same protections as a credit card.

Another misnomer is being able to write the interest off on your taxes. To keep the numbers simple lets say one paid $10,000 in interest over a year, lets also assume a 35% tax bracket. So, you are going to pay the bank $10,000 to avoid paying the IRS $3500? Seems like a waste to me, I'd rather keep that extra $6500 I made.

Buying land or a home is one area where you may need to get a mortgage. Even without a credit score this is fully attainable. We got our home using owner financing, made a good impression and on-time payments for a few years then got a traditional mortgage based on our history. There is still such a thing in this country known as "manual underwriting" of a mortgage, although it takes a lender who knows more about banking than just reading a credit score. You won't find this at any mega bank, but a lot of small local banks, agricultural banks, credit unions, and a few traditional mortgage companies will still do it. If you have paid everything on time in your past, have good references, a steady job and income and no credit score (no credit score is much different than a low or bad credit score) there is no reason why someone can't get a mortgage through manual underwriting or an in-house loan at a small bank.


The way to become wealthy is very simple and it doesn't include debt:

-work hard
-live below your means
-save money every year
-invest wisely

The only interest that we can write off is mortgage interest (until the House and Senate say otherwise). As you noted, most potential home owners do not want to live long enough paying rent while they save up enough money to pay cash for their first home. Yet many people with excellent credit don't have any debt, or if they do, it is debt they could readily pay for with cash but they took on the debt because the cash they have is earning more than the interest they're paying servicing their debt. Thus paying for certain kinds of things outright comes at an opportunity cost of money not earning a return on investment. When I forgo paying for something with cash so as to keep my money working for me, I don't have any emotional misgivings. In fact it is the opposite because I'm applying a concept of arbitrage from high finance and doing it on a household level, a thing that always makes me think that I'm gaming my the silly people offering such low interest rates. My fun and games aside, your point about being able to sleep at night remains true and at some point, like yourself, even people comfortable with exercising credit would rather pay for something with cash than service debt.

Even so, the willingness to pay for things outright doesn't dissuade people with high credit scores from exercising credit. Those people may have three or four credit cards that they use for different types of spending, yet they pay them up every month. I cannot speak for you, but for people living in the middle of nowhere, Amazon Prime is the best thing since buttered bread! Cash-back cards are looked upon by such people as instant wallet coupons, or as a fun little revenue streams. Even so, as a group, people with excellent credit do, as a rule, spend less than their income--which is why there is a correlation between higher credit scores and wealth accumulation.

That said, high-net-worth people have the luxury, due to their wealth, that they don't need to play by the same money management rules as does most Americans simply because high-net worth-people can self-finance. High-net-worth people are kind of like super successful private companies in that they don't have underwriters at a bank to answer to just like successful private companies don't have public shareholders to answer to. High-net-worth people can manage their money however they wish, because they have deep pockets. But trust me: people who maintain their high-net-worth, especially generational wealth, tend to adhere to strict money management rules themselves and their children are often taught to be fluent in money management. Those children who lack the discipline to do so for themselves are kicked off into trust fund land so they cannot bankrupt themselves and their family.

Anyway, you have great points and if you've positioned yourself to a point where credit and credit scores don't matter, then awesome! At the same time, be willing to empathize with the fact that most Americans are not in the same place as yourself and the difference for them between average credit and good credit really does impact the quality of their lives as well as the quality of their retirement.

 

[whizdbiz2]

Another misnomer is being able to write the interest off on your taxes. To keep the numbers simple lets say one paid $10,000 in interest over a year, lets also assume a 35% tax bracket. So, you are going to pay the bank $10,000 to avoid paying the IRS $3500? Seems like a waste to me, I'd rather keep that extra $6500 I made.

I agree... if you have the cash, most people don't. A lot of people don't have the advantage of a business deduction for interest paid either, so when you have to finance it's obviously best to shop for the lowest rate and pay it off as soon as you can. In other words manage your borrowing closely. In our case if we had to save to pay the cash price for the tractor, it would take about 3 yrs. and who knows what the price would be then. We have no debt now, other than a mortgage and I and the wife have a good jobs and can pay the monthly payment easily, and get the tractor NOW. Better deal for me as I need it now and not three years from now. Much of our non-living expense (food, insurance, taxes, etc.) income is going to retirement savings and that is off limits for tools and toys. My alternative to buying would be to short term rent as needed, but I'd rather make payments on my own machines rather than pay for someone elses and with Ohio weather you can't always plan when you need something that the weather will cooperate.

Just our way and maybe not the best for everyone.

 

[mjstef]

Wanna know why fast food chains started accepting credit? SALES! There have been NUMEROUS studies showing that people using plastic will spend 25-30% MORE at Mickey D's than they would spending cash. Their is NO emotional detachment swiping a card but breaking that $100 bill in your wallet hurts. When the credit card bill comes at the end of the month it's just that, A BILL. Not the same emotionally as spending cash. I will tell you where i live there are plenty of people that will take gold and silver for payment here as well as bartering.

 

[MinnesotaEric]

Wanna know why fast food chains started accepting credit? SALES! There have been NUMEROUS studies showing that people using plastic will spend 25-30% MORE at Mickey D's than they would spending cash. Their is NO emotional detachment swiping a card but breaking that $100 bill in your wallet hurts. When the credit card bill comes at the end of the month it's just that, A BILL. Not the same emotionally as spending cash. I will tell you where i live there are plenty of people that will take gold and silver for payment here as well as bartering.

You're right: people with credit card often lack discipline. That is why I originally suggested that the credit card be used to buy something like iTunes and not be carried on your person. In this way, you could not fall into temptation and buy three Big Macs. :licking:

I've yet to know of any day to day household commerce taking place with gold or silver. Throw precious metals at me and my first question is how pure is it, and how can that be verified? My second question is how will you safeguard it against lost value in order for me to take it as a medium of exchange. Silver, for example, has lost half of its value over the last three years, a 50% loss in purchasing power. Gold has been declining since July of 2011. This is not to say that precious metals cannot store value, but that as a medium of exchange in daily commerce, precious metals are troublesome.